How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding J2 Global Inc (NASDAQ:JCOM) and determine whether hedge funds had an edge regarding this stock.
J2 Global Inc (NASDAQ:JCOM) investors should be aware of an increase in enthusiasm from smart money in recent months. J2 Global Inc (NASDAQ:JCOM) was in 30 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 21 hedge funds in our database with JCOM holdings at the end of March. Our calculations also showed that JCOM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing J2 Global Inc (NASDAQ:JCOM).
Hedge fund activity in J2 Global Inc (NASDAQ:JCOM)
At second quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in JCOM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Cardinal Capital, managed by Amy Minella, holds the number one position in J2 Global Inc (NASDAQ:JCOM). Cardinal Capital has a $77.9 million position in the stock, comprising 3.3% of its 13F portfolio. Coming in second is Cliff Asness of AQR Capital Management, with a $37.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish contain Ken Griffin’s Citadel Investment Group, Ken Fisher’s Fisher Asset Management and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to J2 Global Inc (NASDAQ:JCOM), around 3.25% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, earmarking 1.81 percent of its 13F equity portfolio to JCOM.
Now, some big names were breaking ground themselves. ExodusPoint Capital, managed by Michael Gelband, created the most outsized position in J2 Global Inc (NASDAQ:JCOM). ExodusPoint Capital had $2.4 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $1.9 million investment in the stock during the quarter. The other funds with brand new JCOM positions are Schonfeld Strategic Advisors, Donald Sussman’s Paloma Partners, and Greg Eisner’s Engineers Gate Manager.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as J2 Global Inc (NASDAQ:JCOM) but similarly valued. These stocks are Sprouts Farmers Market Inc (NASDAQ:SFM), Omnicell, Inc. (NASDAQ:OMCL), Werner Enterprises, Inc. (NASDAQ:WERN), KB Home (NYSE:KBH), Bandwidth Inc. (NASDAQ:BAND), Inovalon Holdings Inc (NASDAQ:INOV), and Lazard Ltd (NYSE:LAZ). All of these stocks’ market caps are closest to JCOM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SFM | 25 | 467061 | -5 |
| OMCL | 16 | 61075 | -1 |
| WERN | 32 | 389115 | 15 |
| KBH | 23 | 334345 | -2 |
| BAND | 30 | 293956 | -3 |
| INOV | 13 | 77487 | -2 |
| LAZ | 18 | 522215 | 3 |
| Average | 22.4 | 306465 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $306 million. That figure was $204 million in JCOM’s case. Werner Enterprises, Inc. (NASDAQ:WERN) is the most popular stock in this table. On the other hand Inovalon Holdings Inc (NASDAQ:INOV) is the least popular one with only 13 bullish hedge fund positions. J2 Global Inc (NASDAQ:JCOM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JCOM is 84.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on JCOM as the stock returned 16% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
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